In re Public Service Co. of New Hampshire

• Decision Date: 30 November 1989
• Docket Number: Adv. No. 89-08.,Bankruptcy No. 88-00043
• Parties: In re PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE, Debtor. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE, Plaintiff, v. The STATE OF NEW HAMPSHIRE and The State of New Hampshire Public Utilities Commission, Defendants.
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of New Hampshire

108 B.R. 854 (1989)

In re PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE, Debtor PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE, Plaintiff, v. The STATE OF NEW HAMPSHIRE and The State of New Hampshire Public Utilities Commission, Defendants.

Bankruptcy No. 88-00043, Adv. No. 89-08.

United States Bankruptcy Court, D. New Hampshire.

November 30, 1989.

Isaac M. Pachulski, Don Willenburg, Los Angeles, Cal., Kevin J. Burke, for Public Service Co.

Geoffrey B. Kalmus, New York City, J. Michael Deasy, for the Unsecured Creditors Committee.

Richard Tilton, for the Equity Committee.

Larry M. Smukler, Sr. Asst. Atty. Gen., Concord, N.H., Daniel J. Callaghan, Manchester, N.H., for the State of N.H.

William B. Gundling, Asst. Atty. Gen., Hartford, Conn., for the State of Conn.

Susan Keely, for the U.S. Trustee.

George J. Wade, Barbara J. Gould, New York City, and David J. Dunfey, Hampton, N.H., for Citicorp and Consolidated Utilities & Communications, Inc. (CUC).

Peter V. Doyle, West Springfield, N.H., for First Fidelity Bank and Amoskeag Bank.

Jeffrey G. Grody, Hartford, Conn., for Northeast Utilities Service Co.

Ted A. Berkowitz, New York City, for First Fidelity Bank.

Robert Drain, New York City, for Shearson, Lehman, Hutton, Inc. Peter Nils Baylor, Boston, Mass., for Bank of New England and Maryland Nat. Bank.

David W. Marshall, for NEES.

John M. Mutkoski, Cheshire, Conn., for Small Power Producers and Alexandria Power Bio Energy.

Sallie H. Helm, Washington, D.C., for Spear, Leeds & Kellogg.

Noel E. Hanf, New Haven, Conn., for The United Illuminating Co.

MEMORANDUM OPINION

JAMES E. YACOS, Bankruptcy Judge.

This chapter 11 adversary proceeding involves a complaint filed by the plaintiff, Public Service Company of New Hampshire ("PSNH") against the defendants, State of New Hampshire, and the State of New Hampshire Public Utilities Commission. The complaint is for a declaratory judgment as to the preemptive effect of certain provisions of the Bankruptcy Code, 11 U.S.C. §§ 101 et seq., as against conflicting state regulatory requirements, concerning certain of the restructuring transactions included in the debtor's pending plan of reorganization. The Court has jurisdiction pursuant to 28 U.S.C. §§ 157, 1334, 2201, and the general reference order dated February 1, 1985 by the U.S. District Court for New Hampshire.

The unique and unprecedented nature of these reorganization proceedings, involving a regulated monopoly electric utility debtor in reorganization, have been set forth in some detail in earlier opinions entered in this case which provide some insight into the peculiar problems raised in a bankruptcy court reorganization of such an entity, and the particular situation of PSNH in that regard. See, e.g., In re PSNH, 88 B.R. 521 (Bankr.D.N.H.1988); In re PSNH, 88 B.R. 546 (Bankr.D.N.H.1988); In re PSNH, 99 B.R. 155 (Bankr.D.N.H.1989); and In re PSNH, 99 B.R. 177 (Bankr.D.N. H.1989). Such insight provides important context and background for analysis and understanding of the possible preemptive intent of Congress in enacting the statutory provision in question — particularly in terms of the various legal and factual "circularity" problems presented by such a reorganization proceeding. See In re PSNH, 88 B.R. 521, 526-533 (Bankr.D.N.H.1988); In re PSNH, 88 B.R. 546, 552-557 (Bankr. D.N.H.1988).¹

I. PROCEDURAL CONTEXT

On January 28, 1988, the debtor filed its chapter 11 petition. On December 27, 1988, the debtor filed its plan of reorganization. That plan raised on its face an unresolved and unprecedented legal question which is the subject of this dispute. The issue was first raised by the State of New Hampshire in conjunction with a hearing held on January 6, 1989 concerning further procedures in this complex reorganization proceeding. See "Statement Regarding Procedural Hearing" filed by the State of New Hampshire, January 4, 1989 Court Document No. 1547. As a result of that hearing, the Court on January 20, 1989 issued its "Amended Order to Show Cause Regarding a Briefing Schedule", wherein the Court noted the preemption issue and ordered the parties to show cause on February 22, 1989 why the Court should not establish by order a briefing schedule and procedure for hearing and determining that issue in conjunction with the disclosure statement hearings to be scheduled concerning the debtor's plan.

The Court in its January 20, 1989 Order summarized the nature of the question involved with regard to the filed plan and further plan negotiations as follows:

The comments of the parties present at the January 6, 1989 hearing, and the court\'s own review of the plan of reorganization and related pleadings, indicate that a discrete question of law is presented by the plan in its present form i.e., is the plan on its face confirmable or nonconfirmable as a matter of law in terms of the proposed use of § 1123(a)(5) of the Code to authorize transfer of assets and restructuring of entities in such fashion as would result in transfer of regulatory jurisdiction over the debtor and its rates from the New Hampshire Public Utilities Commission to the Federal Energy Regulatory Commission? See also Bankruptcy Code §§ 1129(a)(3) and 1129(a)(6).

The proposed use of § 1123(a)(5) by this debtor is unprecedented, with regard to a regulated utility debtor in a chapter 11 proceeding, and accordingly no party has the benefit of any prior judicial rulings to guide their further negotiations with regard to the present plan of reorganization.

On February 1, 1989, the debtor filed a Motion for Summary Adjudication of the preemption question. On February 3, 1989, the State of New Hampshire filed a written response agreeing that the issue needed to be decided. Later on February 3, 1989, after an extended oral argument on appropriate procedures for hearing the matter, the Court denied the debtor's motion, without prejudice, but allowed the debtor to file a declaratory judgment action as the more appropriate procedural mechanism to resolve the issue.

On February 7, 1989, the debtor filed a complaint for declaratory judgment pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201. The complaint alleges, inter alia, the following as the basis and the justification for its requested relief:

7. As a public utility within the State of New Hampshire, Public Service and its activities and transaction are regulated by statutes of the Defendant State of New Hampshire (the "State") that are applied and enforced by and through an agency of the State, Defendant New Hampshire Public Utility Commission ("NHPUC").

8. Among the statutes of the State of New Hampshire that regulate Public Service and its activities and transactions are statutes that require NHPUC approval of the transfer of franchise, works, or system (RSA 374:30, 374:31), the mortgage of property (RSA 369:2), the issuance of stock, bonds, notes, and other evidences of indebtedness (RSA 369:1, 369:7), and contracts with affiliates (RSA 366:5).

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10. Public Service intends to seek confirmation and implementation of the Plan or of an amended chapter 11 plan that Public Service will file during the course of this chapter 11 case.

11. The Plan provides, and any other plan filed in this chapter 11 case will necessarily provide, for the transfer of property, including franchise, works, and system, from this chapter 11 estate to Public Service (as a reorganized debtor) or to one or more other entities.

12. The Plan provides for the mortgage of property that is currently property of the estate. Any other plan to be filed in this chapter 11 case will also so provide, unless the other plan merely were to provide for the transfer of franchise, works, or system of the estate solely to entities other than Public Service (as a reorganized debtor).

13. The Plan provides for the issuance of one or more issues of stocks, bonds, notes, or other evidences of indebtedness, either directly to existing creditors and equity security holders of Public Service or to others in exchange for consideration to be distributed to or for the benefit of existing creditors and equity security holders of Public Service. Any other plan to be filed in this chapter 11 case will also so provide, unless the other plan merely were to provide for the transfer of franchise, works, or system of the estate solely to entities other than Public Service (as a reorganized debtor).

14. The Plan provides for contracts among affiliates that are successors to the debtor. Any other plan to be filed that provides for the creation of separate subsidiaries in a manner similar to the Plan will also so provide for contracts among affiliates.

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17. The Plan states, in substance, that Public Service need not seek, and that Public Service does not intend to seek, approval from the NHPUC of the transfer of franchise, works, or system, the mortgage of property, the issuance of securities, the contracts among affiliates, or any other transactions provided by the Plan, other than the rates proposed to be charged under the Plan, to the extent required by section 1129(a)(6) of the Bankruptcy Code.

18. Public Service does not intend to seek NHPUC approval of any transactions provided by any other plan filed in this chapter 11 case that would require NHPUC approval under applicable nonbankruptcy law, other than the rates proposed to be charged under any such other plan, to the extent required by section 1129(a)(6) of the Bankruptcy Code.

The debtor's complaint concludes by requesting the following specific declaratory relief:

Declaring the rights and obligations of Public Service and the Defendants regarding the regulatory approvals of the NHPUC, if any, required for confirmation under Section 1129 of the Bankruptcy Code and implementation of the plan or of any other plan to be filed in this chapter 11 case.

The State of New Hampshire and the New Hampshire Public Utilities Commission filed an answer to the debtor's complaint...